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IFRS Train the Trainers Day 2 Consolidated Financial Statements Additional Questions
Consolidation Techniques
When approaching group consolidation, it will be useful to tackle the consolidation through the following working steps:
Working 3: Goodwill
Cost of investment Less: group share of net assets at acquisition (W2) Goodwill on acquisition Less: impairment to date Goodwill to consolidated balance sheet $000 X (X) X (X) X
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Revenue
Parent $000 X
Consolidated $000 X
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MI share of subsidiary profit after tax (must be time apportioned if a mid-year acquisition)
If the subsidiary had been acquired during the year, then there will be no post-acquisition reserves brought forward as the subsidiary did not belong to the group at that date.
You will need to produce W2 to calculate the post-acquisition profits. In the group retained earnings (W5), the groups share of As post acquisition profits must be included. Income statement Include in the groups share of the Associates profit after tax less any impairment losses. Fair value adjustments
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IFRS 3: Business combinations - requires that on acquisition, both the cost of the investment and the net assets acquired are recorded at their fair value. Assets and liabilities must be recognized if they are separately identifiable and can be reliably measured. The future intentions of the acquirer must not be taken into account when calculating fair values. (Fair values is the amount for which an asset could be exchanged, or liability settled, between knowledgeable, willing parties in an arms length transaction)
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Worked Example 1: Consolidated financial statements The balance sheets of TT Ltd and UU Ltd as at 31 May 2009 are as follows:
TT Ltd $000 Assets Non-current assets Property, plant and equipment Investment in UU Ltd Current assets UU Ltd $000
1,640
1,120 2,760
The following information is available: (A) TT Ltd acquired 70% of the share capital of UU Ltd on 31 May 2001. There have been no changes in the share capital of UU Ltd since that date. (B) On 31 May 2001, the fair value of the non-current assets of UU Ltd was $150,000 higher than the book value on that date. This valuation has not been reflected in the books of UU Ltd. (C) On 31 May 2001, the retained earnings of BB Ltd were $850,000. (D) Goodwill has suffered no impairment since 31 May 2001. Required: Prepare a consolidated balance sheet as at 31 May 2009.
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W3: Goodwill
$000 Cost of investment Less: group share of net assets at acquisition (W2) Goodwill to consolidated balance sheet 1400 -1050 350
W4: Minority Interest 30% X $2,200,000 = $660,000 W5: Group retained profits
Parent company (100%) Add: income from UU (70%) Total group profits $000 5380 490 5870
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Equity Ordinary share capital Retained earnings Minority interest Liabilities Current liabilities (2040+710)
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30% A
45,000
69,000
24,000
W3: Goodwill
Consideration Share of net assets of S (80% X 100,000) Less: impairement loss (30%) S $ 92,000 (80,000) 12,000 (3,600) 8,400
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(800) 117,750
W7: Inter-company trading Subsidiary made sales to parent 80% Group / 20% NCI
Unrealised profit - 10,000 X 20% X 50% Dr Group retained earnings - 80% X 1,000 Dr NCI - 20% X 1000 Cr Inventory $ 1,000 800 200 1,000
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Group income statement for the year ended 30 June 2008 Revenue (500,000 +200,000 - 10,000 intra-group) Operating Costs (400,000 + 140,000 + 1,200 goodwill impairment - 10,000 intra-group + 1,000 FV adjustment depreciation + 1,000 inventory) Profit from operations Income from associate - 30% X 26,000 - goodwill impairment 150) Profit before tax Tax (23,000 + 21,000) Profit for the period Attributable to: Equity holders of the parent Non-controlling interest (20% X 39,000 - 1,000 X 2008 Depreciation on FV - 1,000 inventory) Profit for the financial year $ 690,000
Consolidated statement of financial position at 30 June 08 $ Goodwill (W3) 8,400 Investment in associate (W6) 21,750 Tangible non-current assets (87,000 +88,000 + 10,000 FV 3,000 FV depreciation) (W2) 182,000 Net current assets (95,000 + 38,000 - 1,000 inventory) (W2) 132,000 344,150 200,000 117,750 26,400 344,150
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